Updated October 1, 2026.
Direct Answer: Quota share is proportional reinsurance: the reinsurer takes a fixed percent of every premium and every loss from the first dollar, and typically receives a ceding commission. Excess of loss is non-proportional: the reinsurer pays nothing until a stated retention or attachment is exceeded. A reinsurance treaty automatically covers a defined class of business; facultative cover is placed one risk at a time.
This guide compares the treaty structures property and casualty carriers use most often—quota share, surplus share, and the excess-of-loss family—so you can read a slip, a renewal briefing, or a captive program design with the vocabulary straight. For negotiation context and program layering, see the reinsurance treaty complete guide.
Proportional vs non-proportional treaties
Reinsurance treaties fall into two families. Proportional treaties share premium and loss in fixed or formula-driven ratios from the first dollar. Non-proportional treaties leave the cedent bearing losses up to a retention; the reinsurer responds only above that point, usually up to a limit.
Proportional cover smooths results and brings capacity plus ceding commission economics. Non-proportional cover buys peak protection on large losses, catastrophe occurrences, or bad underwriting years without giving up a slice of every small claim.
Quota share
Under a quota share, the cedent cedes an agreed percentage—often 20%, 30%, or 50%—of premium and losses on every policy in the treaty scope. The reinsurer pays its share of claims from dollar one. In return, the cedent typically receives a ceding commission to help cover acquisition and administration costs.
Quota share is common when a carrier needs balance-sheet relief, wants to grow premium with reinsurer backing, or is building a new line and wants proportional support on the whole portfolio. The tradeoff is margin: you share underwriting profit as well as loss, and your net retention on any one account is smaller.
Surplus share
Surplus share is proportional, but the cession percentage is not flat. The cedent keeps a retained line (a standard amount of sum insured on each risk). Premium and loss on amounts above that line are ceded in multiples of the line—often expressed as “lines” of surplus. A risk within the retained line may stay 100% net; a larger risk cedes a higher share.
Surplus share fits commercial property and liability programs where limits vary by account but the carrier wants a consistent retention per risk. It differs from quota share, where even small policies are ceded at the same percentage.
Excess of loss structures
Excess of loss (XL) treaties do not split every dollar. The cedent retains losses up to an attachment point (or retention). The reinsurer pays eligible loss above that point, subject to a per-risk, per-occurrence, or aggregate limit. How attachment and limit are stated—dollars, percentages of subject premium, or loss ratio—defines the structure.
Per-risk (working) excess of loss
Per-risk XL attaches to a single policy or risk. One large fire loss on one insured location can trigger the layer while smaller claims on other policies do not. Underwriters sometimes call this working XL because it sits close to primary limits on heavy industrial, aviation, or other peak exposures.
Per-risk XL is about severity on one account, not aggregation across a book. Retentions and limits mirror primary policy thinking—the same financial terms policyholders see on declarations pages, applied one layer up.
Catastrophe excess of loss and “occurrence”
Catastrophe XL (cat XL) responds to an occurrence: one event that produces loss across many policies in the treaty territory or portfolio. The contract defines what counts as one occurrence—storm hours clauses, earthquake shock definitions, and similar language matter as much as the attachment dollar.
Cat XL limits are often reinstated after a loss. A reinstatement restores part or all of the limit for later occurrences in the treaty year; the cedent usually pays a reinstatement premium, commonly tied to the original premium and the fraction of limit restored. Multiple reinstatements may be allowed at full or pro-rata cost.
Designing cat XL requires knowing where losses pile up. Catastrophe modeling and catastrophe portfolio management are the practical inputs; the treaty words only implement what the portfolio analysis already showed.
Aggregate stop-loss
Aggregate stop-loss protects the cedent’s result over a treaty year, not a single claim or event. Once net losses cross an aggregate attachment—stated as a loss ratio, a dollar aggregate, or both—the reinsurer pays eligible loss above that point, up to an aggregate limit.
Carriers use aggregate covers when frequency or medium-sized losses threaten the year, or when they want a backstop after proportional treaties and per-risk XL. It is underwriting-result reinsurance; it does not replace cat XL for tail events unless the aggregate terms are written to capture them (unusual and carefully negotiated).
Treaty vs facultative reinsurance
A treaty is automatic: every qualifying policy written in the class during the term is covered without individual submission, subject to treaty exclusions, retentions, and special acceptances. Facultative reinsurance is optional placement on one risk—used for oversize limits, non-standard hazards, or exposures outside treaty scope.
Most commercial programs run treaty first and facultative for exceptions. A property owner rarely sees the treaty layer directly, but primary policy limits and insurer solvency still depend on how cleanly those structures fit together.
Market and public-sector context (2026)
Reinsurance pricing and capacity still follow the underwriting cycle. When cat layers tighten or attachment points rise, that flow shows up in primary terms; the hard market vs soft market frame explains how that transmission works.
Alternative capital remains active. Industry trackers put first-half 2026 catastrophe bond issuance at roughly $18 billion (about $17.98 billion on commonly cited deal directories)—a record first half—with outstanding cat bond market size near $65 billion at mid-year. That depth supports collateralized reinsurance and sidecar structures that compete with traditional treaty capacity on peak perils; mechanics overlap with index triggers and bond markets described in the parametric insurance and catastrophe bonds guide. Model and rate filings continue to reflect escalating natural disaster loss trends; carrier filings tie back to climate risk pricing and catastrophe model updates.
On the regulatory side, state insurance departments continue to align statutory reinsurance credit with collateral rules for unauthorized reinsurers. NAIC statutory accounting work in 2026 clarified SSAP No. 61 treatment of derecognized interest maintenance reserve in collateral calculations for applicable life and health reinsurance—positive IMR increases required collateral; negative IMR does not reduce it under the asymmetrical approach adopted in 2026. Details sit in NAIC meeting materials at content.naic.org.
FEMA’s NFIP uses both traditional reinsurance and capital-markets placements. FloodSmart Re catastrophe bonds issued in 2022–2024 remain in force on published schedules (for example, the 2024 placement runs through March 2027 on FEMA’s reinsurance program page). Industry reporting notes loss development from 2024 hurricane Helene affecting some older NFIP cat bond tranches while higher attachments on newer issues may not be triggered—illustrating how occurrence-based ILS differs from indemnity treaties. Program documentation is on FEMA’s NFIP reinsurance page. NFIP pricing under Risk Rating 2.0 remains the fully implemented rating methodology on FEMA.gov; it is separate from treaty wording but shapes flood premium and demand for private flood markets.
Frequently asked questions
What is the difference between quota share and excess of loss reinsurance?
Quota share is proportional: the reinsurer takes a fixed percentage of every premium and every loss from the first dollar, usually in exchange for a ceding commission. Excess of loss is non-proportional: the reinsurer pays only when a single loss, occurrence, or aggregate result exceeds a stated retention or attachment point.
When should a cedent use surplus share instead of quota share?
Surplus share is still proportional, but the ceded percentage varies with how many times the sum insured exceeds the cedent’s retained line. It fits accounts where limits differ by risk but the cedent wants a standard retention on each policy rather than ceding a flat share of every account.
How do per-risk XL and catastrophe XL differ?
Per-risk excess of loss attaches to one large policy or risk—often called working XL. Catastrophe XL attaches to an occurrence: one event that triggers losses across many policies. The treaty defines what counts as one occurrence and how event definitions or hours clauses apply.
What is aggregate stop-loss reinsurance?
Aggregate stop-loss covers the cedent’s net losses over a treaty year once a cumulative attachment is breached. The attachment may be stated as a loss ratio, a dollar aggregate, or both. It protects underwriting results, not a single claim.
What is the difference between treaty and facultative reinsurance?
A treaty automatically covers an agreed class of business written during the term, subject to exclusions and retentions stated in the contract. Facultative reinsurance is negotiated risk by risk, typically for unusual limits, hazardous locations, or exposures outside the treaty’s scope.